Sacramento daily record-union. [volume] (Sacramento [Calif.]) 1875-1891, 1887-02-02
A PROPOSITION TO STEP BACKWARD.

DaTLuleUL.
A PROPOSITION TO STEP BACKWARD.
A bill has been refused first read
ing in the Legislature to make the
legal rate Of interest 6 per cent. That
far it was unobjectionable, as it put the
rate in line with the normal market rate.
Other sections of the bill provided criminal
penalties for contracting to receive, or for
receiving, any greater sum for interest
than per cent, and visited severe punish
ment upon offenders, and melted informers
by promising them half the fines imposed
and collected.
The promptness with which the bill was
negatiyed testifes to the clear judgment of
representative body that the State should
take no backward steps. But that such a
bill sought hearing shows that some still
believe usury laws wise, and possibly that
the Government should carry out the
policy Of interfering with the right of con-
tract in other ways quite as unwise. 1t is
interesting, therefore. to examine the rea-
sons that have led to the abandonment of
the regulative power of Government in the
matter of usury.
The certainty of a law rather than its
severity insures respect for it. The bill in
question would have defeated its own pur
poses because it was SO very severe. Such laws
are nearly always evaded, and presently be-
come dead letters and cucumber the statute
books. The wiser policy, after fixing the
legal rate of interest, is to leave to per
sonal freedom any contract between the
parties for the hire of capital.
Money is a commodity, lent, sold and
transferred as are other commodities, ac-
cording to the need of one and the ability
of the other to supply it. The usury law
would be very imperfect that left man
free to charge such interest as he saw fit
by way of rent ofproperty representing in
vested money, but forbid the loaning of
the coin itself at more than given rate.
The doctrine that supports usury laws, to
be logical, should embrace all rewards of
investment, and thus we would have q
paternalism reaching to and regulating the
profits upon all merchandise and upon all
property than can be bought and sold or
rented for use.
Several States have attempted to enforce
usury laws, but with comparatively little
success. The moral sense of the people
holds it to be contrary to reason that 4
man shall not sell the use Of money on
such terms as he and the borrower may
agree. If We suppose usury law such as
that contemplated, fortified by drastic pen
alties-even as was proposed with the
menace OF imprisonment for their viola
tion-to be enforced, then, as Dr. Perry
puts it so concisely, essential injustice is
done to the lender whenever the market
rate of interest rules higher than the legal
rate. On the other hand, injustice is
worked to the borrower by restriction of
the loan market. More than this, the
borrower is punished by the law, by the
inevitable system that would grow out Of
such a law-that of the borrower insuring
the lender for the risk he takes in violat-
ing the law. This insurance would be
exacted, and the more stringent the law
the harder the terms Of insurance.
twill profit friendsof the defeated bill to
examine the writings on this subject. DR..
Perry, the latest writer, finds that the
better thought of political economists has
been opposed to usury laws, since in prac-
tice they have been of i'll effect. Massa-
chusetts attempted the enforcement of
such laws, but in 1867, reasoning from ex-
perience, abolished the laws and thus de-
elared that in Massachusetts, they have
been found to be injurious. The Mosaic
law forbade the taking of interest except
of strangers of the "chosen people," re-
cognizing the general principle that in
terest-taking was not in itself wrong.
Perry holds that ait is not only need.
less but inyidious to deny by law to money
lenders, who are useful factors in society,
the privilege Of selling their service for
what it will bring in the market, while
other men in every department of business
are allowed to exchange their services on
the best terms they can make without in
reference or control" The transaction
of lending money Is, he points out, clear
case of value of service The lender
might use his money to crafty his own
desires-it is his to use as he pleases, pro-
ductiyely if he chooses, and to receive
back after investment with earned profits.
The surrender of this advantage to the
borrower is a consideration called by po-
Iitical economists abstinence For this
sustaining from his right use, he has the
same right to claim a reward as one who
foregoes working for himself and hires TO
work for another. This reward is interest
and Il stands on the same unassailahle
grounds as the right to wages, and varies
as they do under supply and demand. Two
make bargain. Each is assumed to know
his own mind and necessity, and equally
competent to bargain for an exchange OF
value that is mutual like all other bargain
ing IN trade.
For Government to attempt compel the
lender to take less than the market worth
of money at the time of the loan is in
fringement of the lights of property and